Enbridge, Plains All American eye growth in the Bakken

Canadian spare pipeline capacity could be used up sooner than previously thought

December 12, 2011

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The great American onshore oil renaissance continues to surprise industry participants and market forecasters. North Dakota’s prolific Williston basin, ground zero for the resurgence and the backdrop this fall to a blockbuster $4.4-billion purchase that saw Norway’s Statoil ASA buy Austin-based Brigham Exploration Co., is proving particularly difficult to peg.

Production from the sprawling reservoir has already contributed to the logjam of supply in the U.S. Midwest, where barrels of Canadian oil have been hit by discounts leveled against West Texas intermediate, the regional benchmark price. Daily output from the region – currently at roughly 400,000 barrels and projected to hit one million barrels in the next five or six years – could also eliminate a “supply overhang” of spare pipeline capacity leaving Western Canada sooner than previously thought. “I don’t know how recognized that is,” says Tom Wise, vice-president of consultancy Purvin & Gertz. “It’s going to run out pretty fast.”

Even with construction of TransCanada Corp.’s Keystone XL expansion, Canadian oil producers could face a shortage of pipeline capacity by 2014, roughly two years earlier than competing industry forecasts predict. “The Bakken is growing so quickly that it doesn’t have an easy way out,” Wise says.

Cue Canadian spare capacity, and two pipeline proposals that, collectively, would bring an additional 195,000 barrels of oil north from the Bakken to connect with the Enbridge Mainline. Plains All American LP plans to connect Trenton, North Dakota to Regina, Saskatchewan, with its 50,000-barrels-daily Bakken North Project by the end of 2012. Enbridge, meanwhile, has applied to the National Energy Board to extend the reach of an existing pipeline with an expansion that would shuttle roughly 145,000 barrels of North Dakota crude every day to Cromer, Manitoba, via a new pump station at Steelman, Saskatchewan.

“There’s no refining capacity east of Regina so all that crude is going to be re-exported back to the States,” Wise says. “We’re just pointing out that if that’s the end of the line and we’re looking at Canadian exports, that would be taking up capacity.”

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